Tax incentives are generally defined as fiscal measures that are used to attract local or foreign investment capital to certain economic activities or particular areas in a country. Generally, tax incentives must confer an advantage on the beneficiary while at the same time imposing a cost on the government.

The Zimbabwe Revenue Authority administers various tax incentives aimed at promoting investment while the Ministry of Industry and Commerce, the Industrial Development Corporation and the Zimbabwe Investment Authority are the main administrators of non-tax incentives. Revenue incentives in Zimbabwe apply equally to both domestic and foreign investors and the major goals of incentives in place are: -

  • Income generation
  • Export promotion
  • Employment creation and skills transfer
  • Small business development
  • Industrial development, and
  • Revenue inflows

 

Like many other developing countries, Zimbabwe offers a number of tax and customs incentives in the form of tax holidays, reduced tax rates, and accelerated depreciation.  The incentives are given by sector, type of activity, form of organisation, and geographical location of investment as follows:

Income Tax

Build Own Operate and Transfer (BOOT) and BOT Arrangements

  • Contractors may enter into contracts with state or statutory corporation under which s/he undertakes to construct infrastructure for the state or statutory corporation
  • This will be in consideration of the right to operate or control for a specified period after which the contractor will transfer ownership or control of the item to the state or statutory corporation
  • Enjoys tax holiday for first 5 years
  • Taxed at 15% for the second five years

Special Economic Zones

  • Taxpayers licensed to operate in export processing zones enjoy tax holiday for the first 5 years and are taxed at 15% thereafter.
  • Foreign employees holding temporary employment permits issued by the Department of Immigration to work in the licensed Special Economic Zones, pay Income Tax at 15% of their taxable income.

Manufacturing companies

With effect from 1 January 2015 the rate of tax for manufacturing or processing companies which exports the following:

  • More than 30% or more of its output but less than 41% --------------20%
  • More than 41% or more of its output but less than 51%---------------17.5%
  • More than 51% or more -----------------------------------------------------------15%

Mining companies

All capital expenditure on exploration, development, and operating incurred wholly and exclusively for mining operations is allowed in full. There is no restriction on carryover of tax losses; these can be carried forward for an indefinite period. Taxable income of a holder of special mining lease is taxed at a special rate of 15%.

 

Special Initial Allowance (SIA)

  • This is a capital allowance which ranks as a deduction
  • It is allowed on expenditure incurred on construction of new industrial buildings, farm improvements, railway lines, staff housing and tobacco barns. It is also allowed on additions or alterations to existing items as already mentioned
  • SIA is also allowed on articles, implements, machinery and utensils purchased for purposes of trade
  • Allowance is optional and once claimed this replaces wear and tear
  • Allowed at the rate of 25% of cost from year one and the next three years
  • The rate of SIA for Small to Medium Enterprises (SMEs) is 100% which 50% is allowed in first year of use the balance over two years at 25% as accelerated wear and tear
  • The rate of SIA for licensed investor is 100% which 50% is allowed in first year of use the balance over two years at 25% as accelerated wear and tear

Farmers special deductions

Farmers are allowed special deductions over and above the normal deductions. Examples include expenditure on fencing, clearing and stamping land, sinking boreholes, wells, aerial and geophysical surveys.

Value Added Tax

Services supplied by designated tourist facility operator [Section 10(2)q]

Tourist facility operators conducting business in approved tourism development zones or an operator of a hunting safari is required to charge VAT at 0% for services offered to persons who are not residents of Zimbabwe and who are required under the Exchange Control Act to pay for such services in foreign currency.

Farming inputs and equipment are subject to VAT at 0% [Section 10 a. r. w. 2nd schedule of the Regulations]

Most farm inputs such as animal feed, animal remedy, fertiliser, plants, seeds and pesticides and equipment or machinery used for agricultural purposes are zero-rated.

Deferment of collection of vat on the importation of capital goods [section 12a]

Value added tax could be deferred on some capital equipment for the exclusive use in mining, manufacturing, agricultural and aviation industries whose investment generally relies on imported capital. Any person who produces proof to the satisfaction of the commissioner general of zimra that s/he has imported goods of a capital nature for his/her own use can qualify for this incentive. Below is a table showing deferment period and the value of the equipment.

Deferment thresholds and period

Value of equipment (US$)

Deferment period ( Days)

100,000 to 1,000,000

90

1,000,001 to 10,000,000

120

10,000,001 and above

180

Double Taxation Agreements (DTAs)

Zimbabwe has signed several Double Taxation Agreements meant to avoid or mitigate double taxation of the same income in the two countries to the agreement, that is, where a business entity operates in the two territories. The agreements restrict some Withholding Taxes to the amounts specified and the DTAs offer reduced rates of Withholding Taxes on dividends, interest, royalties and technical fees.

 

 

Disclaimer

This article was compiled by the Zimbabwe Revenue Authority for information purposes only. ZIMRA shall not accept responsibility for loss or damage arising from use of material in this article and no liability will attach to the Zimbabwe Revenue Authority.

 

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